FREEPORT-MCMORAN INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Quarterly Results: Strong quarter with $2.7 billion EBITDA and $1.9 billion operating cash flows. Sales volumes exceeded guidance for copper and gold, favorable unit cash costs.
• Markets: Copper prices traded in broad range, followed macro sentiment. Secular demand trends from electrification offset cyclical slowdown. China's demand supported by electrical grid and EV growth.
• Operations by Region: US improving efficiencies, South America's Cerro Verde solid, Indonesia strong but smelter fire setback.
• Leach Initiative: Early results show significant value potential, scaling to 300-400 million lbs/annum, aiming for 800 million lbs/annum.
• Organic Growth Projects: Brownfield opportunities in US (Bagdad, Safford Lone Star), Chile (El Abra), Indonesia (Kucing Liar).
• Outlook: Three-year outlook for sales of copper, gold, molybdenum. Modeled EBITDA and cash flows sensitive to copper and gold prices.

Segment Performance

• US: Taking actions to improve efficiencies and cost performance, monitoring key indicators with positive trends in asset efficiency. Leach initiative helps reduce costs. Unit net cash costs affected by lower grades but improving.
• South America: Cerro Verde operation had solid quarter with mill throughput over 420,000 metric tons/day, improved mill recovery, and unit net cash costs slightly less than last year's third quarter after excluding nonrecurring charge. Purchased additional Cerro Verde shares.
• Indonesia: Results strong with unit net cash credit of $0.71 per pound. Focus on operating plans, commissioning copper cleaning circuit and precious metals refinery. Smelter fire setback, but working on repairs and exports.

Guidance

• 2024: Average unit net cash cost expected to approximate $1.58 per pound, below previous estimates.
• Modeled Results: EBITDA ranges from $11B at $4 copper to $15B at $5 copper. Operating cash flows range from over $7B at $4 copper to $10.5B at $5 copper.
• Capital Expenditures: 2024 forecast $3.6B, 2025 forecast $4.2B, focusing on value-enhancing projects.

Risks

• Smelter Fire: Setback in Indonesia smelter commissioning, affecting start-up. Need to repair equipment, monitor export continuity.
• Regulatory: Restricted cash policy in Indonesia for export proceeds, which may continue beyond smelter ramp-up.

Question and Answer

Q: Just wanted to ask a couple of questions about Indonesia. And first, on smelter fire with the insurance. Kathleen, you mentioned that the insurance would cover the costs for repairs. What if there is a situation where there's a delay to being able to export concentrate? Do you have any business interruption insurance that might cover the cost of loss shipments or any insurance that might cover the incremental royalties that you had have to pay on concentrate on exports?

A: The policy that we're referring to is a construction insurance policy that does not have business interruption coverage. It does cover the cost of the repairs. This is not a -- as you can see from the picture, it's not a big area of the affected facilities, it is an essential area. The process is essential to the overall production of copper, refining of copper, but it's not a large part of the overall facility. So our focus, Chris, really is getting the repairs done as quickly as possible. We do have discussions with the government. It's in everyone's interest that the concentrate continue. We do have some flexibility within our existing quota of what we can ship through 2024 but we'll be asking for additional flexibility to make sure that we can we can ship everything that we produce in 2024. And then depending on the time frame that it takes to restore operations, we'll work with the governments for continuity in the portion of 2025 that will be affected, it's in everyone's interest. As you run through the math, the government gets essentially through taxes and royalties and dividends over 70% of the economics or the cash flow. So it will be in everyone's interest for this to continue and we'll work hard to get this operation restored as quickly as possible. But in the interim, we expect that we'll continue to be able to export.

Q: A couple more on the smelter, I'm afraid. Firstly, I appreciate you're still assessing the situation. But can you give some high level guidance on the length of delay that we're talking about, is it three months, could it be substantially longer than that? And then in terms of the government reaction, do you think -- and the export extension, do you think this will be just a formality and received in good time or could there be a risk that it could be delayed beyond the year end? And then a quick one just separate to the smelter on the Cerro Verde stake increase, it's small but probably the best type of M&A that you can do. Is this a one-off or do you think there could be more opportunities to increase your stake?

A: On the time frame for the repairs, we don't have that information yet. This is a event that happened essentially a week ago and our teams have been on the ground inspecting the damaged equipment, determining what needs to be replaced, what does not need to be replaced. And we're working in parallel with our vendors on understanding lead times for various equipment. The early results in terms of the area affected, not everything on the structure was damaged. We were fortunate we did not have big impacts to structural steel. There will be some equipment and piping that needs to be replaced. And so we're just working through that right now, trying to understand what the lead times are for this equipment. This is not equipment off the shelf. So will need to be fabricated and we'll work quickly. The fortunate thing is right now it's not a time in the market where supply chains are real tight. So we're getting really good response from our vendors, working to understand the root cause of this and when the vendors are involved in that exercise with us as well. So we don't have a specific time frame other than to assure you that we've got the right teams in place. We've got the right organization that's working through this in a professional way to expedite what we can and get this back up and running so that we can achieve our start-up goals. The government has been supportive, they sent -- we have our own fire department there at the site. But the government also sent support and has been very supportive. They've been looking also -- the police, this was normal procedure, looking at the investigation of the causes and we're collaborating on that exercise as well. I think if you look at the world and these smelters, this is not the first time there's been a fire. In Indonesia, the people that we are talking with understand the hazards involved in these types of operations. We're working hard and designing these operations so that they don't have hazards. But if you look at history, there have been have been other similar type incidents. So they understand it, they understand our good faith and getting the smelter completed. And they also understand the economics that this -- continuity will benefit them as we go forward. So I think we'll just continue to work collaboratively to make sure that all of the -- the impacts of this are mitigated, and they can be mitigated through insurance and through continued exports. And that's what we want to make sure that we do to every extent possible is mitigate the impact of this incident. With the Cerro Verde question, Cerro Verde has a public market trades in the relatively small float that trades on the Peruvian Stock Exchange. And so we're interested in buying more if there's opportunities to do it. There were some funds that were interested in selling and we were able to pick up those shares. But it's a high quality asset, very difficult to replicate. And so to the extent there are opportunities to purchase additional shares, we're interested in doing that but that takes a willing seller as well. So we'll just continue to monitor that as we go forward.